Cardinal Health, Tereos price deals; talk heard on Pegasus, Preem; market slightly weaker on low volume

By Paul A. Harris

St. Louis, April 4 - The high-yield market was slightly weaker on Wednesday, a hedge fund manager said, adding that there had not been a lot of movement as the ranks of players thinned ahead of Thursday's abbreviated session which will give way to the three-day Easter recess.

"It was a real quiet day," said the manager, adding that despite a modest advance in stock prices the junk-tracking CDX 100 index was 3/16 lower on the day at 99 bid, 99.125 offered.

"Around 10 o'clock this morning we began winding down for Easter holiday," the source said.

Meanwhile in the primary market two companies priced a combined three tranches of notes totaling $565 million and €725 million.

A healthy portion of Wednesday's primary market news involved Europe.

Pharmaceutical Technologies completes two-parter

PTS Acquisition Corp., which will be merged into Cardinal Health 409, Inc. (Pharmaceutical Technologies & Services), priced an $865 million equivalent two-part offering of high-yield notes (Caa1/B-) on Wednesday morning.

The Somerset, N.J., contract manufacturing and service provider for the pharmaceutical industry priced a $565 million issue of eight-year senior PIK election notes at par to yield 9½%, on the wide end of the 9¼% to 9½% price talk. The PIK-election notes have a cash-pay coupon of 9½%, which steps up by 75 basis points to 10¼% should the issuer elect to pay in kind.

Meanwhile the company priced a €225 million issue of 10-year senior subordinated notes at par to yield 9¾%, on the tight end of the 9 7/8% area price talk.

Morgan Stanley, Goldman Sachs & Co., Banc of America Securities and Deutsche Bank Securities were joint bookrunners for the acquisition financing.

Following the Wednesday close, a trader spotted the new par-pricing TPS Acquisition dollar tranche, the 9½% notes due 2015, closing at 100.25 bid, 100.50 offered.

The first to go

Pondering the PTS terms, a high yield syndicate official not in the deal, noted that the euro-denominated senior subordinated notes priced at the tight end of price talk while the dollar-denominated senior PIK-election notes came at the wide end.

Prospect News asked the official whether this discrepency between the tranches, in terms of the pricings relative to price talk, might reflect pent up demand on the part of European investors.

Perhaps, said the official.

However, the source continued, it may be a reflection of a market which has a dwindling appetite for comparatively exotic structures, such as PIK-election notes.

"The slightest correction will trigger the jettisoning of covenant-light second-lien loans and PIK holdco loans and notes," the source said.

"Pricing will hold in with regard to the standard stuff. Rates and spreads may not increase.

"But the exotic structures will be gone."

Tereos upsizes

Elsewhere French sugar producer Tereos Europe priced an upsized €500 million issue of seven-year senior bullet notes (Ba3/BB-) at par to yield 6 3/8% on Wednesday, accoridng to an informed source.

The revised price talk was 6¼% to 6 3/8%, lowered from initial talk of 6½% to 6¾%.

Calyon Securities ran the books for the debt refinancing deal which was upsized from €400 million.

A source close to the transaction said that the Tereos deal had been three times oversubscribed.

The source added that the order book was mainly comprised of high yield accounts, but added that there had been some interest from cross-over buyers as well.

Approximately 100 investors were in the deal, concentrated in the United Kingdom but also, expectedly, from France.

In addition the deal saw play from buyers in The Netherlands, Scotland, Germany, Switzerland, Italy, Belgium and Luxemburg.

The source added that the general quality of book was outstanding - dominated by long-only asset managers, with some participation by hedge funds and private banks.

The new Tereos 6 3/8% notes due 2014 closed Wednesday at 101.125 bid, 101.375 offered, with good two-way volume on the break, the source added.

Thursday's slate

Three issuers are expected to place junk bonds during the abbreviated Thursday session.

Swedish oil refiner and marketer Preem Finans AB (Preem Petroleum) set price talk for its $750 million equivalent offering of three-year split-coupon floating-rate notes on Wednesday.

The cash-pay coupon is talked at Libor plus 150 basis points, and the PIK coupon is talked at Libor plus 350 to 375 basis points.

Deutsche Bank Securities is the bookrunner for the non-rated notes.

Elsewhere Dallas-based hotel technology provider Pegasus Solutions Inc. downsized its proposed issue of eight-year senior notes to a range of $100 million to $105 million from the previously announced amount of $120 million on Wednesday, and talked the notes (Caa1/CCC+) at a yield in the 10½% area.

Pricing is expected on Thursday morning.

Jefferies & Co. is the bookrunner.

More give from Realogy

Also expected to price on Thursday is the Realogy Corp. $3.15 billion multi-tranche junk bond deal.

The Parsippany, N.J., real estate franchisor is in the market with $2.25 billion of seven-year senior notes (Caa1/B-) in three tranches which it talked on Tuesday.

A tranche of fixed-rate notes was talked 10% to 10¼%.

A tranche of toggle notes was talked to price three-eighths behind the fixed-rate notes.

Meanwhile a tranche of floating-rate notes was talked at Libor plus 525 to 550 basis points.

In addition Realogy is offering $900 million of eight-year senior subordinated notes (Caa2/B-) which it talked to price 150 basis points behind the senior fixed-rate notes.

At the same time changes surfaced in the debt test and restricted payments test covenants.

The leverage threshold for the credit facility carveout changed to the greater of $3.25 billion and 4.25 times leverage from the greater of $3.25 billion and 4.75 times leverage.

JP Morgan, Credit Suisse, Bear Stearns and Citigroup are joint bookrunners for the LBO deal.

However well after the close of the Wednesday session a market source told Prospect News that price talk on the senior fixed-rate notes had apparently been pushed out to 10¾%, and the talk on the senior subordinated notes to 12¾%.

Also, the source said, further covnenat changes appeared to be in the works.

Given the new talk and the tigher covenants - changes to which sponsor Apollo Management has consented, according to the source - two "anchor orders" had been booked and the deal was on course.

Petroplus bringing $1.2 billion

Very little news developed on Wednesday with regard to the post-Easter new deal calendar.

Swiss oil refiner Petroplus Holdings is expected to launch a $1.2 billion offering of high-yield notes after the Easter break.

The notes are expected to be offered in both dollar- and euro-denominated tranches.

Investor roadshows in the United States and Europe are expected.

Proceeds will be used to help fund the $1.4 billion acquisition of the Coryton Refinery.

No bookrunner names had been heard as Prospect News went to press.

A quiet secondary

Traders and other market sources told Prospect News that very few bonds indeed had changed hands on Wednesday, as trading activity slowed to a crawl ahead of the holiday.

A source from a hedge fund did see bonds of General Motors Corp. and Ford Motor Co. change hands.

The source marked GM's long bond, the 8 3/8% notes due 2033, at 89 bid, 89.50 offered, 5/8 point lower on the day.

Meanwhile Ford's long paper, the 7.45% notes due 2031, was 77 bid, 77.50 offered, an eighth lower.

The source added that the market was softer on no volume, Wednesday.

Good yield, no hair

A trader, meanwhile, related much the same scenario as the hedge fund source.

"Accounts are looking for ideas," the source said, "decent paper that yields more than everything is yielding right now, with no hair on it, which you're never going to find.

"It's just not out there."

Assigning most of the blame for Wednesday's low volume to the approaching Easter bunny, the source also mentioned that a couple of lower rated investment-grade deals may have created a slight amount of distraction.

Corn Products International, Inc. priced $300 million in two tranches (Baa3/BBB-), the source said, adding that the $100 million tranche of 6 5/8% 30-year notes priced at a spread of 180 basis points to Treasuries.

"Previously they only had short paper that has been trading extremely well, leading to the expectation that the new long paper would come tighter," the trader commented.

The source also commented that Time Warner Cable placed $5 billion of investment-grade notes in a three-part deal on Wednesday.

However the source conceded that the yield-hungry middle range of the junk market likely didn't bother to turn to watch the Corn Products or Time Warner Cable deals.

The watchword for Wednesday's secondary market, according to this and other sources, was "unchanged."

The trader gave levels for recent issues placed by Freeport-McMoRan Copper & Gold Inc. in a $6 billion high-yield transaction.

The 8 3/8% notes due 2017 were going out Wednesday at 108 bid, 108.25 offered, unchanged.

Meanwhile the Freeport-MacMoRan 8¼% notes due 2015 were headed for the close at 107.25 bid, 108 offered, unchanged.

And the six-month Libor plus 325 basis points floating-rate notes due 2015 were going out at 105 bid, 105.25 offered - again, unchanged.

However another trader, commenting that Standard & Poor's had raised Freeport's corporate credit rating and senior unsecured debt rating to BB+ (from BB and BB-, respectively), had the company's 8¼% notes due 2015 closing at 108.25 bid, 109.25 offered, up ½ point.

This source also gave a spot on the recently priced Steel Dynamics, Inc. 6¾% notes due 2015 as 100 bid, 100.50 offered at the Wednesday close, unchanged.

The trader said that automotive supplier ArvinMeritor's 8 1/8% notes due 2015 closed at 97.50 bid, 98.50 offered, ½ point lower on the session due to lowered first quarter guidance.

Meanwhile Cooper-Standard Automotive Inc.'s 8 3/8% notes due 2014 closed at 88.50 bid, 89.50 offered, up a point on no news, the trader said.

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